Fitch Ratings has affirmed
The Rating Outlook for FNF and title insurance subsidiaries is Stable.
Fitch has also affirmed the core ratings for
KEY RATING DRIVERS
The affirmation of FNF's ratings reflects Fitch's view that the group credit profile of the combined organization remains in line with rating expectations. While the standalone credit profile of FGL is weaker than FNF, FGL's annuity business does provide earnings and risk diversification to FNF's core title insurance business.
FNF's ratings continue to reflect the company's strong business profile, profitability and capitalization. FNF is the largest
FNF's title insurance operating subsidiaries have strong capitalization with statutory operating leverage of 3.4x as of YE 2019 and a risk-adjusted capital (RAC) score for full year 2019 of 203%. Fitch anticipates that capitalization metrics going forward will be similar to recently reported metrics. Financial leverage was 29.5% as of 1H20 and 32% on a proforma basis accounting for FNF's
FGL's ratings reflect a one-notch uplift from its standalone credit profile of 'BBB+' due to FNF ownership. Fitch considers FGL to be a strategically very important subsidiary of FNF. FGL is expected to comprise approximately one-third of operating earnings of the combined organization on a run rate basis. The Stable Outlook on FGL reflects Fitch's expectation that while potential losses tied to the economic fallout of the coronavirus pandemic will pressure the company's earnings and capital, FGL's financial performance and balance sheet fundamentals are expected to largely perform in line with rating expectations.
Pressure from the effects of the coronavirus for FGL over the near term is largely expected to come from the company's exposure to asset risk, including increased credit defaults and ratings migration on the company's investment portfolio. Longer-term concerns include the challenging operating environment due to the lower for longer low rates scenario. Fitch considers FGL to have average exposure to interest rate risk relative to other annuity peers and notes the company's track record of managing crediting rates to maintain net investment spreads.
FGL's ratings continue to reflect the company's strong operating performance over recent years, strong statutory capitalization and improving business profile. The ratings also consider FGL's above-average exposure to structured securities and risky assets relative to the industry, which is partially mitigated by investment manager
Fitch upgraded the IFS rating of F&G Life Re. Ltd (FGLR) to 'A-' from 'BBB' based on a change in view of FGLR's strategic importance to FGL to 'Core' from 'Important'. Given the entity's role in supporting affiliated reinsurance transactions with its core US affiliates, Fitch believes a 'core' strategic importance designation is appropriate. FGLR's prior 'Important' designation reflected Fitch's expectation that FGLR was used to support FGL's third-party reinsurance business, similar to
Fitch placed the IFS ratings of FGR on Ratings Watch Evolving following FNF's classification of certain FGL third-party offshore reinsurance businesses as discontinued operations in 2Q20. While third-party offshore reinsurance businesses will not be part of FGL's long-term operations, the company has not finalized the specific manner or timing of disposal, including any continued involvement with these operations. Resolution of FGR's Rating Watch Evolving status is expected to follow pending outcome of the company's strategic review of FGR.
RATING SENSITIVITIES
The ratings remain sensitive to any material change in Fitch's rating case assumptions with respect to the coronavirus pandemic. Periodic updates to Fitch's assumptions are possible given the rapid pace of changes in government actions in response to the pandemic, and the pace with which new information is available on the medical aspects of the outbreak.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Holding Company Ratings
A material adverse change in Fitch's Ratings Assumptions with respect to the coronavirus impact;
A sustained increase in financial leverage above 30%;
A sustained reduction in GAAP fixed-charge coverage below 7.0 times;
A reduction in the 'A' IFS rating of the title operation, which is currently the key driver of the 'A' group credit profile against which the holding company IDR is notched, or a two-notch downgrade of the 'BBB+' standalone credit profile of FGL;
A shift in business mix to place materially greater emphasis on the lower rated life operations.
Title Insurance Company Ratings
A material adverse change in Fitch's ratings assumptions with respect to the coronavirus pandemic;
A sustained Title RAC score below 130% or deterioration in capitalization profile that would lead to a material weaker balance sheet.
Life Insurance Company Ratings
A material adverse change in Fitch's ratings assumptions with respect to coronavirus-related effects;
A one-notch decline in the 'BBB+' standalone credit profile of FGL to 'BBB' could result in a one-notch downgrade of FGL's IFS ratings;
Fitch's view of FGL's standalone profile could decline based on the following metrics:
---FGL's consolidated RBC ratio falling below 300% and Prism score in the low end of 'Adequate';
---Operating ROA below 0.5% for four consecutive quarters;
---Risky asset ratio increases above 160%.
The following could result in a downgrade of FGR rating:
FGL retains FGR as a runoff business or sells FGR to a buyer with a lower credit profile than FGL.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Holding Company Ratings
A sustained financial leverage under 16%;
A sustained increase in GAAP fixed-charge coverage of 12.0x or higher;
An upgrade in the group credit profile to above 'A'.
Title Insurance Company Ratings
A solid reserve position such that GAAP reserves develop favorably on a consistent basis;
Improvement in capital strength demonstrated by a sustained Title RAC score greater than 200%;
A sustained pretax GAAP operating margin of 12% or better;
Demonstration of greater operating performance stability through the current economic downturn relative to the crisis of 2008-2009.
Life Insurance Company Ratings
A material positive change in Fitch's ratings assumptions with respect to the coronavirus pandemic.
A positive rating action is prefaced by Fitch's ability to reliably forecast the effects of the coronavirus pandemic on the financial profile of both the
Fitch's view of FGL's standalone profile could improve based on the following metrics:
---Prism capital model score well into the 'Strong' category on a sustained basis.
---Continued stable investment performance.
The following could result in an affirmation or upgrade of FGR rating:
FGL sells FGR to a buyer with a credit profile similar or higher than FGL.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of Environmental, Social and Corporate Governance (ESG) Credit Relevance, if present, is a Score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
RATING ACTIONS
ENTITY/DEBT RATING PRIOR
Fidelity & Guaranty Life Holdings, Inc. LT IDR BBB Affirmed BBB
senior unsecured
LT BBB Affirmed BBB
Alamo Title Insurance Company of Texas Ins Fin Str A Affirmed A
Fidelity National Financial, Inc. LTIDR BBB + Affirmed BBB+
senior unsecured
LT BBB Affirmed BBB
F&G Cayman Re Ltd. Ins Fin Str A- Affirmed A-
Commonwealth Land Title Insurance Company Ins Fin Str A Affirmed A
Fidelity National Title Insurance Company Ins Fin Str A Affirmed A
Fidelity & Guaranty Life Insurance Company Ins Fin Str A- Affirmed A-
Fidelity & Guaranty Life Insurance Company of New York Ins Fin Str A- Affirmed A-
Chicago Title Insurance Company Ins Fin Str A Affirmed A
FGL Holdings LT IDR BBB Affirmed BBB
F&G Life Re Ltd Ins Fin Str A- Upgrade BBB
F&G Reinsurance Ltd Ins Fin Str BBB Affirmed BBB
CF Bermuda Holdings Limited LT IDR BBB Affirmed BBB
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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